Midday Update 03/07/11
In my weekly prep video series for 12631 subscribers last evening, I discussed the concept of having a clear game plan and being prepared. Despite all of the enticing long setups, I noted that it was crucial to not jump the shark and suffer a vicious bite wound. Instead, we wanted to first see the bulls show that they would, once again, emerge from a short-term pullback victorious. If we saw that, then we were prepared to strike, and we knew which sectors and stocks to quickly attack.
However, after popping up to 1327 this morning, the bulls failed yet again to take out the 1330-1332 area on the S&P 500, which is where I wanted you base your market posture off of. Instead of blasting through this recent volatile range to new highs, the market sharply reversed, and now we find ourselves below last Thursday and Friday’s lows. To make matters more troublesome, the small caps and Nasdaq Composite Index are leading us lower, which usually indicates a pretty clear case of risk aversion.
Many of those setups we had are eyes on are not broken by any stretch, but they’re obviously not working anywhere close to the point where it is worth risking precious capital. Going forward, I am eyeing the 1312 level on the S&P. At the time of this writing, we are just below it at 1311. If the bulls can recapture it, then there is a decent chance for a more spirited bounce this afternoon. That 1312 level represents the lows from last Thursday and Friday. We also need to closely watch the 2730-2740 area on the Nasdaq Composite Index (currently at 2740). A breach of that area, and I expect sellers to swiftly take us lower to at least 2700.
If you insist on actively trading, please respect your stop losses and do not get rattled by the increased volatility. Speaking of which, given how choppy and unpredictable the market has been of late, I want to reiterate that cash was, is, and always will be a viable position for individual traders to have when the market is violently indecisive. Seeing as 12631 subscribers are paying for our service, I take their portfolio account balances very seriously, despite not managing their money. Playing great defense is more important than trying to hit home runs every single day the market is open, particularly when we are faced with a market like this.